adjusting v/s non-adjusting event

.... you fail to mention the all important reporting date! Let's assume it is 31 March 20X5. There are two possibilities - there was a present obligation at the reporting date because the employee had de facto been dismissed before the year end - there was no present obligation at the reporting date in the absence of a claim. This is what IAS 37 has to say: "In rare cases, for example in a lawsuit, it may not be clear whether an entity has a present obligation. In these cases, a past event is deemed to give rise to a present obligation if, taking account of all available evidence, it is more likely than not that a present obligation exists at the end of the reporting period. An entity recognises a provision for that present obligation if the other recognition criteria described above are met [i.e. probable outflow of resources and reliable estimate]. If it is more likely than not that no present obligation exists, the entity discloses a contingent liability, unless the possibility of an outflow of resources embodying economic benefits is remote." In the scenario you give, I would therefore go for disclosure of contingent liability per IAS 37 - i.e. it doesn't have to be classified as adjusting/non-adjusting per IAS 10.